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Dear Mr Moffat,
in the Nente Co question, in the FCFF calculation – why don’t they consider interest expense either for net cash flow (they don’t deduct % expense from PBIT) or in the tax calculation (in the answers they just apply 20% to the PBIT = 1230000*20%)?
Thank you!
For free cash flows we need to the cash flow available to all investors (equity and debt) and so we always take the cash flows before interest.
It is only when calculating the free cash flows to equity that we take account of the interest (because we are then looking at the cash available just for equity).
I do explain this in my free lectures 🙂
Thank you Sir,
yes, I believe I mixed the FCFE and FCFF, but now I have drown the two models to memorize, thank you.
My strong accounting background is tricking me here as you always want to correctly calculate the net profit…
Thank you.
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